James Brodie
Head of Learning & Development, Flux
Gold Breaks Higher, South Korea Exports Jump, Funds Sell US Tech Stocks
Gold rallies, bond yields climb, AI stocks remain under pressure as markets price rising fiscal, geopolitical and tech risks.
Gold breaks higher +1.7 and out of the converging price range while silver jumps +3.8%.
The UK 30-year bond yield jumps 7bp (Chart 1: Bloomberg) now just 10bp off cycle highs as UK’s 7th PM in 10 years arrives. Burnham has floated raising the income tax personal allowance, boosting social care spending, increasing defence spending (with Healey as Chancellor), keeping the triple lock, and sticking to the fiscal rules, among other things. Either he can't deliver all of this, or it means substantial tax hikes are coming. The bond market WILL test the new government.
Meanwhile with mortgage rates higher house prices continues to fall. Since September 2021, house prices in the Southeast have fallen 17.4% (ONS).
South Korea’s Exports Jump to July Record on AI-Led Gains
On the surface, credit spreads sit at all-time lows with unusually low sector dispersion, as structural buyers (insurers, pension funds, and ETF/mutual fund inflows) keep a powerful, steady bid under investment grade and high yield bonds. But underneath that calm surface, stress is building in credit's riskiest, most levered corner: CLO equity tranches, the first-loss layer of the $1.3 trillion CLO market, just returned -15% in Q1 2026, their worst quarter since the 2020 pandemic crash and worse than the -12% drop in Q2 2022, hit by falling software loan prices and a slowdown in new loan issuance that's shrinking the pool of attractive assets for CLO managers. This divergence shows the tightness in headline spreads isn't a sign that everything is fine, it reflects heavy structural demand for senior, investor grade risk while leveraged, lower-quality pockets already show real cracks, so carry should still be collected prudently, with an eye on a sharp rate drop or broader risk-off event that could force a repricing across the whole market. (Chart 2: Bloomberg)
Two historical cycles that markets aren't pricing are about to overlap. Every midterm election year since 1974 has produced an SPX drawdown, ten for ten, averaging around -20%, and all 12 new Fed chairs over the past 90 years have faced an equity drawdown within their first nine months as markets test their reaction function. The last time these two cycles coincided was 2018, Powell's first year and a midterm year that ended in a -20% Q4, and 2026 brings the same overlap with less cushion: a hawkish-leaning new chair, a midterm calendar, and a starting CAPE above 40.
The South Korean and US AI trades are becoming increasingly synchronized: The 60-day correlation between the KOSPI and Nasdaq 100 index is up to +0.46, the highest since July 2024. This marks a sharp reversal from a negative correlation of -0.20 recorded in March. (Chart 3: The Kobeissi Letter)
Hedge funds are selling US tech stocks at “record pace” in last 2 months Hedge funds are selling off companies that build AI technology, computer chips, and data centers. (Chart 4: Goldman Sachs)
Jamie Dimon says he wouldn't buy stocks or long-dated bonds at current levels, arguing the 10-year should be higher given rate fundamentals, and warns that geopolitical risks are bigger than markets appreciate - a view shaped partly by his 2020 health scare, which left him with no regrets given his family and career. On the UK, he wants Andy Burnham and the country to succeed but stresses growth requires the right policies, while criticizing the bank levy as an unfair, principle-lacking tax on JP Morgan that has cost shareholders billions despite the bank's strong UK presence.
Google is developing a new AI chip that could run Gemini models 6x to 10x more efficiently than its latest TPUs, per The Information. The chip, internally called “Frozen v2”.
Chinese AI models are taking record share among U.S. firms on OpenRouter. The proportion of tokens used by American companies running through Chinese models has climbed to roughly 58%, a record high.
Apple is now trading at nearly 11x sales, the highest valuation level in company history.
SpaceX shares are now trading at $120, almost 50% below the peak price of $225.
Russia's Finance Ministry has announced it will stop issuing government bonds "to facilitate market stabilization". Russian financial markets have been crashing in recent months, with 10year bond rates now close to 17%.
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